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Case Study: Weight Watchers International

Weight Watchers is a global business in the health and wellness industry and has a combination of both company-owned and franchise locations. The weight management company provides tools and services at a cost. Weight Watchers requires a membership of some sort in order to participate, even if only using the online tools. The best results for weight loss occur when members pay to attend meetings in combination with the online tools (which was the whole original point of Weight Watchers—having a community of supporters).

Weight Watchers’ website speaks only about the founder, Jean Nidetch, and does not mention who the current CEO is; however, I was able to find out that James R. Chambers has been the CEO for nearly 3 years now by conducting a quick internet search. Chambers’ LinkedIn profile shows that he came from Kraft Foods, where he was the president of Snacks and Confectionery—which seems a little ironic (producing “junk” food and then going to a health and wellness company).

Weight Watchers International has been and is still the leading weight loss company in the U.S (for now). They have been doing great for the past 50 years with the exception of the last few years. They were known for creating a community/family feel to support each other on the journey to a healthier life. However, times have changed; customer preference has changed and Weight Watchers is feeling the effect of that. Weight Watchers is experiencing a steady decline as seen in their annual income statement (see Table 1 below).

Weight Watchers is facing an increasing amount of competition as the entry barrier is relatively low in the health & wellness industry. In addition to this huge threat, they also have to adjust to a new generation who think very differently. The old Weight Watchers program worked extremely well for the first 50 years, but now things have changed and the Millennials are nothing like their predecessors. “’Consumers are not dieting in the traditional sense anymore — being on programs or buying foods specific to programs,’ Mintel analyst Marissa Gilbert said to NPR. ‘And there’s greater societal acceptance of different body sizes.’”, quoted Yahoo Finance contributor, Mallory Schlossberg (2016).

Weight Watchers reached the maturity phase in the Industry Life Cycle Stages quite some time ago. If they’re not careful, they will be entering the decline phase. Their revenue has been dropping steadily for the last 12 quarters in a row (Byron) and this can be a sign of entering the declining phase. However, Weight Watchers is doing their best to “renovate” their program to stay alive. They did almost a complete overhaul. Alexandra Sifferlin talks about this in her December 2015 article titled, “Every Change Weight Watchers Just Made: Explained”:

The new program, called “Beyond the Scale” is in response to both changing science about nutrition and consumer sentiments, says Gary Foster, Weight Watchers’ Chief Scientific Officer. “The way we think about it is that we used to have a very narrow focus on weight, and now weight is one of things we focus on but it’s not the only thing,” he says. “The consumer sentiment is, ‘I still want to lose weight but I’m thinking about in a more holistic way” (Sifferlin).

Some of the changes they made are: The way they calculate points per food item, allotted daily points, allotted weekly points, how exercise points are used, and a new focus on “inner strength”. This relates to the text book, Strategic Management: Text & Cases, discussion on Industry Life Cycle Stages. Dess et al cover, “The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities” (2012, p. 187). Weight Watchers’ recognizes the need to continue research and development in the maturity phase—especially in hopes to fight the decline.

ANALYSIS VIA PORTER’S FIVE FORCES MODEL

The threat of new entrants is high because the cost of entry is low. Weight Watchers is not a diet/pharmaceutical company, they are a service company. It would not be too difficult to replicate that at a lower price point and that’s what many are doing. Weight Watchers’ brand image is good; they’ve been around for several decades and are reputable; however, they are outdated and too pricey for the new generation of consumers.

The bargaining power of consumers is very high. The cost to switch to a new brand is not only low, they may save money! There are so many free weight management support programs out there, like MyFitnessPal which is a calorie and activity tracker that also has a community for support. Because Weight Watchers is mainly a service business, the bargaining power for suppliers is very low. They are not reliant on other businesses, just their “leaders” and coaches.

The threat of substitute products and services is also very high, because there are already so many weight loss companies. The differentiating factors of these companies are their ability to provide the same level of service for free or a very low cost. This does not look good for Weight Watchers. That being said, the intensity of rivalry among competitors in the industry is strong. They used to be compared to Jenny Craig, but now they’re competing with a seemingly endless list of free apps!

STRATEGY USED

Weight Watchers’ strategy is not working. They are changing their platform to be focused on a healthy lifestyle versus the number on the scale. However, that is only a small fraction of the problem. Their competition is fierce and their product just isn’t great enough to be charging such high membership costs. Still, the managers at Weight Watchers are wise to make sweeping changes to their program and tools in order to stay alive. Dess et al discuss the need for R&D later on in the Industry Life Cycle Stages—it’s not just for the Introductory stage (although it’s crucial there), it’s also vital in the maturity stage:

Managers must strive to emphasize the key functional areas during each of the four stages and to attain a level of parity in all functional areas and value-creating activities. For example, although controlling production costs may be a primary concern during the maturity stage, managers should not totally ignore other functions such as marketing and R&D. If they do, they can become so focused on lowering costs that they miss market trends or fail to incorporate important product or process designs. Thus, the firm may attain low-cost products that have limited market appeal (2012, p. 187).

SPECIFIC STRATEGIES

Competitive Advantage – Differentiation

Despite being successful for so many decades, the Company is having a lot of trouble these past few years. In an attempt to capitalize on differentiation, Weight Watchers signed a celebrity endorsement deal with Oprah Winfrey this past October in 2015. Celebrity endorsement is an old fashioned method of differentiation that can still be effective (Dess, p.183); however, most people have grown skeptical and care more about seeing the quality and results first hand. In fact, some may feel that if you need to pay a celebrity to endorse your product then it’s not speaking for itself.

The “Oprah Effect” was a failure and a huge waste of money. Membership (to Weight Watchers) continued to decline along with their revenue. Market Watch discusses this in their 2016 article, Oprah ‘effect’ for Weight Watchers disappoints, saying “The company’s revenue fell 21% in the quarter ended Jan. 2 as its membership rolls continued to shrink. It was the 12th straight quarter that revenue declined at Weight Watchers” (Byron).

Vertical Integration

As mentioned in the Porter’s Five Forces Model, Weight Watchers has little risks with suppliers. This is mostly due to the fact that they are vertically integrated. They supply their own services and are not reliant on a third party organization. So far this has been successful for Weight Watchers; although, they must not underestimate the threat of internal risks. Many of the leaders (Weight Watchers employees that lead meetings) make very little money and are not compensated for the time it takes to setup and plan for the meetings—they’re only compensated for the 60 minutes the meeting takes. This could be the recipe for a future strike.

Strategic Alliances

Weight Watchers International saw an opportunity within the corporate realm. They were smart to pick up on the fact that organizations are becoming more and more health conscious and it’s in their best interest to provide health and wellness incentives. With this in mind, Weight Watchers struck a strategic deal with Humana to with corporations. In this deal, participating employees offer discounted Weight Watchers memberships to their employees. This has not flown off the shelves yet, but may prove to be a life saver as companies continue to become more health conscious.

External Governance Control

Weight Watchers is a public entity whose stock has been steadily decreases. These outside “voters” control the value of a company’s stock. Weight Watchers shareholders are making it clear that something needs to change. Dess et al explain:

The market for corporate control is one external mechanism that provides at least some partial solution to the problems described. If internal control mechanisms fail and the management is behaving opportunistically, the likely response of most shareholders will be to sell their stock rather than engage in activism.106 As more stockholders vote with their feet, the value of the stock begins to decline (2012, p. 341).

Linking Strategic Reward

Weight Watchers needs a lot of help in this area. While they do offer basic incentives, it was found in an internal forum provided by the company that compensation was not based on merit (Phillips). Employees discovered that some with seniority and degrees or even master’s degrees were making less than some with neither. This caused a huge decrease in employee morale. Coming up with a strategic reward system may fix these problems. The Strategic Management textbook describes this on pages 368 and 369:

The effective use of reward and evaluation systems can play a critical role in motivating managers to conform to organizational strategies, achieve performance targets, and reduce the gap between organizational and individual goals. In contrast, reward systems, if improperly designed, can lead to behaviors that either are detrimental to organizational performance or can lower morale and cause employee dissatisfaction (Dess, 2012).

Ambidextrous Organization

One area where Weight Watchers is doing pretty well is adapting to the changing market. They have modified their services to fit the new age views on a healthy lifestyle. Dess et al say managers need to “maintain adaptability and remain proactive in expanding and/or modifying their product–market scope to anticipate and satisfy market conditions” (2012, p. 384). Weight Watchers did a complete overhaul in their vision and platform. They invested over $8MM in this major overhaul and so far have not reaped any rewards. However, the CEO Jim Chambers is hopeful that the benefits are still coming (slowly but surely), “Recruitment is an indicator that comes before revenue, and it takes time for revenue to catch up” (Byron, 2016).

COURSE OF ACTION RECOMMENDED

As it is, Weight Watchers has a relatively high-cost service and limited market appeal. Perhaps the managers are “too close” to the issue or acting in self-interest and not thinking of the long-term profit. They may be too focused on making changes to the program that they won’t accept the fact that it’s the costs that need to change.

Weight Watchers has quite the list of hurdles to jump. Maybe exploring other products (such as health shakes, protein shakes, and fitness gear) will generate other avenues of revenue so that they can create a free tool to capture more consumers. Perhaps their partnership with Humana will pay off. This is a new market and can be very lucrative for Weight Watchers as businesses are becoming more and more health conscious.

OPINION

This was an interesting case study. I have limited personal experience with Weight Watchers; so I have an outside perspective and can clearly see that they have a major problem on their hands. It’s interesting that the management on the inside stays and sinks with the ship. Perhaps they truly believe that changing their platform and hiring a celebrity endorsement will be the answer to all their problems. I am skeptical. I don’t see how they will possibly survive without fixing their price point. Nothing in their offering is unique to justify their costs (not anymore). Weight Watchers is on their way to the declining stage of the industry life cycle. What do you think? Tell me in the comments below!